Every week we hear about a new application of new technologies could be used in our day-to-day lives. Most of these advances seem interesting, but we rarely have a clear understanding of how they will improve our lives, and even less about how they work. In most cases their implications in the grander scheme of things are completely lost to us.

An example of digitally-based, economic inventions is the Bitcoin. The most common initial reaction to Bitcoins is that there is something rebellious about them that appeal to people's sense of technological intrigue. Most people, however, know very little about Bitcoins.

Basically, Bitcoins are a virtual currency - in effect, digital cash - that allow for transactions to be made directly from one person to another. Bitcoins are not issued by a government or monetary authority. In effect, Bitcoins are a privately created currency that can be used for some transactions, but do not show all the characteristics required to considered 'money.'

A positive quality of Bitcoins is that there are no transactions costs such as the kinds of fees that are traditionally charged by credit card companies. In this respect, Bitcoins challenges the financial gains that banks enjoy because of their monopoly power.

A negative quality is that Bitcoin transactions are done anonymously. With no oversight, unknown individuals can easily make any trade they want to - including illegal transactions. This anonymity is what led to Bitcoins rise in popularity in some segments of popular culture.

It is also this quality that has made Bitcoins popular with anarchists and libertarians.

To some, Bitcoins are a 'financial innovation.' However, many so called 'financial innovations' have led to financial disasters, such as the infamous NINJA mortgages (No Income, No Job, or Assets) that fueled the most recent mortgage bubble and recession.

'Financial innovations' are, more often than not, new ways of promoting financial speculation - often only for the sake of speculation. The most exciting form of speculation comes when value fluctuates widely and often. Trying to buy low and sell high provides the excitement, but the gains are often as much related to chance as good judgment.

John Kenneth Galbraith, the renowned, Canadian-born economist, in his brilliant little book entitled 'A Short History of Financial Euphoria' observed that the common fascination with speculative financial phenomena often turns those who bask in the glory of speculative gains into legendary financial failures.

There is no doubt that Bitcoins are designed to attract speculators. With more people holding Bitcoins for speculative purposes (not necessarily to facilitate transactions) and the resulting frequent swings in the value of a Bitcoin, it is difficult to know what the real value of a Bitcoin is. What can it really buy at any given moment? With frequent, often large, changes in a Bitcoin's value, they do not exhibit what is a commonly accept characteristic of money as a 'store of value.'

So, can Bitcoins, based primarily on speculation, secondarily on facilitating transactions, and not being a reliable store of value really be a lasting, progressive 'financial innovation' that can stimulate lasting economic growth and prosperity?

Perhaps we should consider the cautionary words of the John Maynard Keynes when we was commenting on the speculative frenzies that led to the Great Depression. "Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done."

Bitcoins are more a cultural phenomenon than an economic innovation. Caveat emptor!

Tom Phillips, an economist, is a member of the faculty at Fleming College and Trent University.